The American Antitrust Institute has asked the Federal Trade Commission to begin an investigation of Rembrandt Inc., an owner of patents relating to the digital television broadcasting standard that the Federal Communications Commission has mandated for use by TV broadcasters. Richard Stern investigates the idea of reasonable and nondiscriminatory licensing in the context of two-tier markets.

1. TV broadcasters will switch to digital-only broadcasting on 17 Feb. 2009, after which analog TVs won't work without cable, satellite, or converter boxes (or users must instead replace old analog TV sets with new digital TV sets).

2. Rembrandt has also sued a transmitter manufacturer, several cable TV companies, and a manufacturer of TV sets.

3. For the purposes of this discussion, we can assume that everything that AAI says about this aspect of the case is correct.

4. AAI makes an extended argument, however, that "Rembrandt's conduct is subjecting digital equipment manufacturers to the threat of having to pay royalties that would far exceed the entire cost of their equipment that implements the ATSC standard. Those increased costs will be passed on to the ultimate consumers in higher prices." I think this must be a straw-man argument, because I don't think any licensor would propose such a license. I don't see how the equipment manufacturers could fund payment of such royalties out of their equipment sales, so it makes no sense to try to impose such an arrangement on them-while the alternative field-of-use license approach is feasible and is a well-known expedient. We are necessarily handicapped, here, by not knowing the real facts, which do not appear to be public. But AAI's notional version of the facts seems highly implausible.

6. The effort to capture the value of machine A by charging its user for it in terms of how much B it produces may lead to use of illegal tie-ins or other restrictive arrangements so that use can, in effect, be metered and charged for proportionately. A mimeograph machine manufacturer may require uses to buy ink from it, at inflated (i.e., above-market) prices. Xerox may require users to buy paper from it. The excess price on the tied item makes the user pay in proportion to its use of the machine, which in turn is proportional to the value of the machine to the user.